-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, V4RQzhnFbwxN/WwgulNJUCGT5yM5JeAF7CMXP+A+EBrVcuV6H4jYYxeezH0mbO4l DsAhUCntU6all5bo5713PQ== 0000950147-97-000813.txt : 19971117 0000950147-97-000813.hdr.sgml : 19971117 ACCESSION NUMBER: 0000950147-97-000813 CONFORMED SUBMISSION TYPE: 10QSB PUBLIC DOCUMENT COUNT: 7 CONFORMED PERIOD OF REPORT: 19970930 FILED AS OF DATE: 19971114 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: PREMIUM CIGARS INTERNATIONAL LTD CENTRAL INDEX KEY: 0001041479 STANDARD INDUSTRIAL CLASSIFICATION: TOBACCO PRODUCTS [2100] IRS NUMBER: 860846405 STATE OF INCORPORATION: AZ FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10QSB SEC ACT: SEC FILE NUMBER: 001-13273 FILM NUMBER: 97721998 BUSINESS ADDRESS: STREET 1: 15651 N 83RD WAY STREET 2: STE 3 CITY: SCOTTSDALE STATE: AZ ZIP: 85260 BUSINESS PHONE: 6029228887 MAIL ADDRESS: STREET 1: 15651 N 83RD WAY STREET 2: SUITE 3 CITY: SCOTTSDALE STATE: AZ ZIP: 85260 10QSB 1 QUARTERLY REPORT UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-QSB QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTER ENDED COMMISSION FILE NUMBER --------------------- ---------------------- September 30, 1997 0-29414 PREMIUM CIGARS INTERNATIONAL, LTD. (Exact name of small business issuer as specified in its charter) Arizona 86-0846405 (state or other jurisdiction of (I.R.S. Employer Identification Number) incorporation or organization) 15651 North 83rd Way, Suite 3 Scottsdale, Arizona 85260 (Address of principal office) (Zip code) Registrant's telephone number, including area code: (602) 922-8887 Securities registered pursuant to Section 12(b) of the Act: No par value common stock Securities registered pursuant to Section 12(g) of the Act: No par value common stock Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities and Exchange Act of 1934 during the preceding 12 months (or for such shorter periods that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes No X --- --- As of September 30, 1997, there were 3,469,092 shares of Premium Cigars International, Ltd. common stock, no par value outstanding. INDEX ----- PART I - FINANCIAL INFORMATION Item 1 - Financial Statements Consolidated Balance Sheet (Unaudited) as of September 30, 1997 Consolidated Statements of Operations (Unaudited) for the three and six months ended September 30, 1997 and 1996 Consolidated Statements of Changes in Stockholders' Equity (Unaudited) for the period from the date of inception, June 1, 1996 through March 31, 1997 and for the six month period ended September 30, 1997. Consolidated Statements of Cash Flows (Unaudited) for the six months ended September 30, 1997 and 1996 Notes to Consolidated Financial Statements Item 2 - Management's Discussion and Analysis or Plan of Operation PART II - OTHER INFORMATION Item 1 - Legal Proceedings Item 2 - Changes in Securities and Use of Proceeds Item 3 - Defaults Upon Senior Securities Item 4 - Submission of Matters to a Vote of Security Holders Item 5 - Other Information Item 6 - Exhibits and Reports on Form 8-K SIGNATURES 2 PREMIUM CIGARS INTERNATIONAL, LTD AND SUBSIDIARY CONSOLIDATED BALANCE SHEET (UNAUDITED) SEPTEMBER 30, 1997
ASSETS Current Assets Cash and cash equivalents $3,514,417 Receivables trade 314,061 related parties 16,946 miscellaneous 6,212 ---------- Total Receivables 337,219 Inventory 354,265 Held to maturity securities 3,411,897 Other current assets 152,511 ---------- Total Current Assets 7,770,309 Property and Equipment, Net 197,484 Other Assets Humidors, net 517,586 Notes receivable - related parties 86,225 Organizational costs, net 36,742 Miscellaneous 10,456 ---------- Total Other Assets 651,009 ---------- TOTAL ASSETS $8,618,802 ========== LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT) Current Liabilities Notes payable - current portion $ 4,430 Accounts payable 683,068 Accrued expenses 250,678 ---------- Total Current Liabilities 938,176 Total Long Term Liabilities 0 ---------- TOTAL LIABILITIES 938,176 Equity Common stock - no par value, 10,000,000 shares authorized, 3,469,092 shares issued and outstanding as of 9/30/97 8,807,049 Accumulated deficit (1,126,423) ---------- TOTAL EQUITY 7,680,626 ---------- TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $8,618,802 ==========
3 PREMIUM CIGARS INTERNATIONAL,LTD AND SUBSIDIARY CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
Three Months Ended September 30 Six Months Ended September 30 ------------------------------- ----------------------------- 1997 1996 1997 1996 ------------------------------- ----------------------------- NET SALES $1,372,316 $ 132,511 $2,000,496 $ 132,511 COST OF SALES 1,013,951 105,345 1,521,969 105,345 ------------------------------- ----------------------------- GROSS PROFIT 358,365 27,166 478,527 27,166 SALES AND MARKETING 482,354 737 600,048 737 GENERAL AND ADMINISTRATIVE 237,492 29,153 538,997 29,153 ------------------------------- ----------------------------- LOSS FROM OPERATIONS (361,481) (2,724) (660,518) (2,724) OTHER INCOME (EXPENSE) Interest and miscellaneous income 24,667 -- 25,797 -- Interest and miscellaneous expense (22,296) (1,354) (46,754) (1,354) Loan Fees (95,000) -- (95,000) -- ------------------------------- ----------------------------- TOTAL OTHER INCOME (EXPENSE) (92,629) (1,354) (115,957) (1,354) ------------------------------- ----------------------------- NET LOSS $ (454,110) $ (4,078) $ (776,475) $ (4,078) =============================== ============================= LOSS PER SHARE $ (0.20) $ (0.01) $ (0.42) $ (0.01) =============================== ============================= WEIGHTED AVERAGE NUMBER OF SHARES OUTSTANDING 2,251,371 1,480,500 1,868,042 1,480,500 =============================== =============================
4 PREMIUM CIGARS INTERNATIONAL, LTD. AND SUBSIDIARY CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY (UNAUDITED) for the period from the date of inception, June 1, 1996 through March 31, 1997 and for the six month period ended September 30, 1997.
Common Stock Total ------------------------------- Accumulated Treasury Stockholders' Shares Amount Deficit Stock Equity (Deficit) ---------- ----------------------------------------------------------------- Balance, June 1, 1996 -- $ -- $ -- $ -- $ -- Shares issued for cash 1,433,400 212,050 -- -- 212,050 Shares issued for services 47,100 207,625 -- -- 207,625 Net loss -- -- (349,948) -- (349,948) ---------- ----------------------------------------------------------------- Balance, March 31, 1997 1,480,500 419,675 (349,948) -- 69,727 ---------- ----------------------------------------------------------------- Purchase of treasury stock (15,000) -- -- (5,000) (5,000) Shares issued for services 15,000 32,500 -- 5,000 37,500 Additional compensation recorded on private transactions -- 72,500 -- -- 72,500 Net loss for the three month period ended June 30, 1997 (unaudited) -- -- (322,365) -- (322,365) ---------- ----------------------------------------------------------------- Balance, June 30, 1997 1,480,500 524,675 (672,313) -- (147,638) ========== ================================================================= Additional required paid in capital -- 150,000 -- -- 150,000 Shares issued at Initial Public Offering 1,900,000 7,726,020 -- -- 7,726,020 Representative's Warrants -- 1,710 -- -- 1,710 Shares issued with Overallotment 88,592 404,644 -- -- 404,644 Net loss for the three month period ended September 30, 1997 (unaudited) -- -- (454,110) -- (454,110) ---------- ----------------------------------------------------------------- Balance, September 30, 1997 3,469,092 $8,807,049 $(1,126,423) $ -- $ 7,680,626 ========== =================================================================
5 PREMIUM CIGARS INTERNATIONAL, LTD AND SUBSIDIARY CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
Six Months Ended September 30 ----------------------------- 1997 1996 ---------- ---------- Increase (Decrease) in Cash and Cash Equivalents: Cash flows from operating activities: Cash received from customers $1,742,286 $ 132,511 Cash paid to suppliers and employees (2,307,865) (108,034) Interest and loan fees paid (141,754) (1,354) Interest earned 25,797 -- ---------- ---------- Net cash provided (used) by operating activities (681,536) 23,123 ---------- ---------- Cash flows from investing activities: Purchase of property and equipment (183,137) -- Purchase of humidors (545,427) (23,124) Short term investments made (3,411,897) -- Organizational costs (8,151) -- Deferred offering costs (879,279) -- ---------- ---------- Net cash used by investing activities (5,027,891) (23,124) ---------- ---------- Cash flows from financing activities: Proceeds from common stock issue 9,321,396 1 Proceeds from debt 1,185,000 -- Repayment of debt (1,345,000) -- Proceeds from lease financing 4,430 -- ---------- ---------- Net cash provided by financing activities 9,165,826 1 ---------- ---------- Net increase in cash and cash equivalents 3,456,399 -- Cash and cash equivalents - beginning of period 58,018 -- ---------- ---------- Cash and cash equivalents - end of period $3,514,417 $ -- ========== ========== Reconciliation of Net Loss to Net Cash used for Operating Activities: Net loss $ (776,475) $ (4,078) ---------- ---------- Adjustments to reconcile net loss to net cash used for operating activities: Depreciation and amortization 100,831 737 Changes in assets and liabilities: Receivables - trade (249,761) -- - related parties (8,449) -- - miscellaneous (6,212) -- Inventory (227,928) (44,781) Other current assets (136,904) -- Other assets (10,456) -- Notes payable - related parties (19,641) -- Accounts payable - trade 573,814 45,464 Accrued expenses 79,645 25,781 ---------- ---------- 94,939 27,201 ---------- ---------- Net cash used for operating activities $ (681,536) $ 23,123 ========== ==========
6 PREMIUM CIGARS INTERNATIONAL, LTD. AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1. Basis of Presentation: The accompanying consolidated financial statements of Premium Cigars International, Ltd. and Subsidiary (the "Company") have been prepared in accordance with generally accepted accounting principles for interim financial information and in accordance with the instructions to Item 310 of Regulation S-B. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring adjustments) considered necessary for a fair presentation of the Company's financial condition and operating results for the interim periods presented, have been included. Operating results for the six months ended September 30, 1997 are not necessarily indicative of the results that may be expected for the year ending March 31, 1998. These interim financial statements should be read in conjunction with the prospectus dated August 21, 1997, including the financial statements and notes contained therein, filed with the Securities and Exchange Commission. 2. Nature of Operations: Premium Cigars International, Ltd. (the "Company") is a Corporation organized under the laws of the State of Arizona on December 16, 1996. CAN-AM International Investments Corp. (CAN-AM), a British Columbia Canadian corporation, was incorporated on June 20, 1996. The Company acquired all of the outstanding stock of CAN-AM on December 31, 1996. The principal business purpose of the Company is the distribution of premium cigars using countertop humidors in convenience stores, grocery stores and other retail outlet markets. The Company conducts business throughout the United States. The Company's wholly-owned subsidiary, CAN-AM, operates in five Canadian Provinces. 3. Earnings Per Common Share: Earnings per share are based upon the weighted average number of shares outstanding for each of the respective periods. Fully diluted earnings per share are not presented as they are anti-dilutive. The Company completed an initial public offering of its Common Stock on August 21, 1997. Pursuant to Securities and Exchange Commission rules, shares of Common Stock issued for consideration below the anticipated offering price per share during the 12-month period prior to filing of the registration statement have been included in the calculation of common share equivalent shares as if they had been outstanding for all periods presented. 4. New Accounting Pronouncements: On March 3, 1997, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 128, "Earnings per Share" (SFAS 128). This pronouncement provides a different method of calculating earnings per share than is currently used in accordance with APB 15, "Earnings per Share." SFAS 128 provides for the calculation of basic and diluted earnings per share. Basic earnings per share includes no dilution and is computed by dividing income outstanding for the period. Diluted earnings per share reflects the potential dilution of securities that could share in the earnings of an entity, similar to fully diluted earnings per share. This pronouncement is effective for fiscal years and interim periods ending after December 15, 1997; early adoption is not permitted. The Company has not determined the effect, if any, of adoption on its earnings per share computations. Statements of Financial Accounting Standards No. 129, "Disclosure of Information about Capital Structure" (SFAS No. 129) issued by the FASB is effective for financial statements ending after December 15, 1997. The new standard reinstates various securities disclosure requirements previously in effect under Accounting Principles Board Opinion No. 15, which has been superseded by SFAS No. 129. The Company does not expect adoption of SFAS No. 129 to have a material effect, if any, on its financial position or results of operations. 7 PREMIUM CIGARS INTERNATIONAL, LTD. AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) 4. New Accounting Pronouncements: (Continued) Statements of Financial Accounting Standards No. 130, "Reporting Comprehensive Income" (SFAS No. 130) issued by the FASB is effective for financial statements with fiscal years beginning after December 15, 1997. Earlier application is permitted. SFAS No. 130 establishes standards for reporting and display of comprehensive income and its components in a full set of general purpose financial statements. The Company has not determined the effect on its financial position or results of operations, if any, from the adoption of this statement. Statements of Financial Accounting Standards No. 131, "Disclosure about Segments of an Enterprise and Related Information" (SFAS No. 131) issued by the FASB is effective for financial statements beginning after December 15, 1997. The new standard requires that public business enterprises report certain information about operating segments in complete sets of financial statements of the enterprise and in condensed financial statements of interim periods issued to shareholders. It also requires that public business enterprises report certain information about their products and services, the geographic areas in which they operate and their major customers. The Company does not expect adoption of SFAS No. 131 to have a material effect, if any, on its Results of Operations. 5. Held to Maturity Securities: Held to maturity securities consist of proceeds from the initial public offering temporarily invested in United States treasury bills. As of September 30, 1997, these were comprised of treasury bills with a yield of 5.234%, maturing on February 26, 1998. 6. Subsequent Event: The Company's Board of Directors elected to change its fiscal year end from March 31, to Dec 31, effective with the year ending Dec 31, 1997. The accompanying financial statements have been presented on a March 31, year end basis. 8 Item 2 - Management's Discussion and Analysis or Plan of Operation - ------------------------------------------------------------------ GENERAL Premium Cigars International, Ltd. ("PCI" or the "Company"), an Arizona corporation, is a national and international marketer and distributor of premium cigars in convenience stores and other high volume retail stores in the United States and Canada. In recent years, cigar smoking has regained popularity in the United States. Consumption and sales of cigars, particularly premium cigars, have increased significantly since 1993. Sales in the U.S. of all types of cigars increased from 3.4 billion units in 1993 to 4.4 billion units in 1996, an annual increase of 8.7%. However, premium cigars, the type marketed and distributed by PCI, increased at an annual rate of 67.0% from 1995 to 1996. We have established the objective of placing our PCI Cigar Program, which includes supplying humidors, cigars, service and information in 10,000 high volume convenience, gas, grocery and drug stores and outlets by March 31, 1998, and in 30,000 to 50,000 outlets within three to five years. In these selected markets, we offer a broad range of brands as well as in-house private label brands, priced at retail from $1.00 to $8.00. We operate in one industry segment, which is the marketing and distribution of premium cigars and accessory products. Results of Operations In December 1996, PCI acquired all of the outstanding stock of CAN-AM, which prior to that had acquired the cigar distribution operations, including cigar accounts, humidors and inventory of Rose Hearts, Inc, a Washington corporation, and J&M Wholesale, Ltd., a British Columbia (Canada) corporation. J&M did not begin its cigar distribution until June 1996 and had no material sales until the three month period ended September 30, 1996, and then, principally to Southland Canada (7-Eleven) outlets. Rose Hearts did not begin cigar distribution until late summer of that year and distributed primarily in the State of Washington. Therefore, any comparisons made to the results of operations in 1996 are limited to the three month period ended September 30, 1996 (the "September 1996 Quarter"). Also, certain expenses and costs in the income statement for the three months ended June 30, 1997 (the "June 1997 Quarter") that were included in our Initial Public Offering Prospectus dated August 21, 1997 (the "Prospectus"), have been reclassified to make them consistent with the presentation of these expenses and costs in the income statements for the three months ended September 30, 1977 (the "September 1997 Quarter") and the six months year-to-date period ended September 30, 1997 (the "September 1997 YTD Period"). We believe that the reclassified income statements better present the performance of the Company on a forward-looking basis. 9 Our revenues for the September 1997 Quarter and the September 1997 YTD Period were $1,372,316 and $2,000,496, respectively, compared to revenues of $132,511 for the September 1996 Quarter. The increase in revenues for the September 1997 Quarter compared to the September 1996 Quarter was 935.6%. We derived revenues principally from the initial "rollout" of new orders to stores, which included a humidor and cigars among other items, and from re-orders of cigars and accessories to restock the humidors. The rollouts for our Program for each quarter were: -------------------- ---------------- --------------- -------------------- September 30, 1996 March 31, 1997 June 30, 1997 September 30, 1997 -------------------- ---------------- --------------- -------------------- 110 480 2,610 4,212 -------------------- ---------------- --------------- -------------------- We announced in our press release dated November 3, 1997, that re-orders for the month of August 1997 averaged approximately $120 per month for our combined United States and Canadian operations. Reorders for our substantially more mature PCI Cigar Program in Canada averaged more than double that, up from approximately $100 per month one year earlier. The increases in both the number of rollouts and the average dollar amount of monthly reorders account for the substantial change in revenues for the September 1997 Quarter and the September 1997 YTD Period compared to the September 1996 Quarter. As shown below, our revenues for the September 1997 quarter increased $744,136 or 118.5% over the revenues for the June 1997 Quarter. --------------- ----------------------- ---------------------------- June 1997 Quarter September 1997 Quarter --------------- ----------------------- ---------------------------- Revenues $ 628,180 $ 1,372,316 --------------- ----------------------- ---------------------------- $ Increase - $ 744,136 --------------- ----------------------- ---------------------------- % Increase - 118.5% --------------- ----------------------- ---------------------------- Our gross margins for the September 1997 Quarter and the September 1997 YTD Period were 26.1 % and 23.9 %, respectively, compared to 20.5% for the September 1996 Quarter. In the September 1997 Quarter, we were able to reduce the cost of product relative to sales price by 7.0% compared to the September 1996 Quarter. This was achieved by entering into certain strategic purchasing arrangements designed to improve and protect our margins and by making large-volume purchases with selected vendors. The improvements realized in product costing were offset in part by the expense of building a core warehousing and shipping team to meet the objectives set for both new store rollouts and re-orders. Even here, we used temporary employees during peak demand periods to lessen the brunt of these expenses. Our ongoing efforts to reduce product, warehousing and shipping costs are reflected in the 36.6% improvement in the gross margin we achieved during the September 1997 Quarter compared to the June 1997 Quarter. 10 --------------- ----------------------- ---------------------------- June 1997 Quarter September 1997 Quarter --------------- ----------------------- ---------------------------- Gross Margin 19.1% 26.1% --------------- ----------------------- ---------------------------- % Change - 36.6% --------------- ----------------------- ---------------------------- Selling, general and administrative expenses ("SG&A Expenses") for the September 1997 Quarter and the September 1997 YTD period included non-recurring charges of $160,000 and $270,000, respectively. The $160,000 charge represents management fees paid to two key executives, and the $110,000 charge represents compensation expense related to common stock sold by the chief executive officer of the Company at a price below fair market value. June 1997 September 1997 September 1997 Quarter Quarter YTD Period - ---------------------------------- ------------ ---------------- -------------- SG&A Expenses With Non-recurring Expenses $ 419,199 $ 719,846 $1,139,045 - ---------------------------------- ------------ ---------------- -------------- % of Revenues 66.7% 52.5% 56.9% - ---------------------------------- ------------ ---------------- -------------- Non-recurring Expenses included in SG&A Expenses $ 110,000 $ 160,000 $ 270,000 - ---------------------------------- ------------ ---------------- -------------- SG&A Expenses Without Non-recurring Expenses $ 309,199 $ 559,846 $ 869,045 - ---------------------------------- ------------ ---------------- -------------- % of Revenues 49.2% 40.8% 43.4% - ---------------------------------- ------------ ---------------- -------------- We established an infrastructure to obtain the sales objectives outlined in the Prospectus. Many selling and marketing expenses are typically incurred in advance of the revenues that might be realized from the selling and marketing efforts represented by these expenses. Accordingly, SG&A Expenses were high relative to revenues during the June 1997 Quarter (49.2%) and the September 1997 Quarter (40.8%). With significantly increased revenues in the September 1997 Quarter, SG&A Expenses, relative to revenues, did decline from the June 1997 Quarter. Substantially all of the interest income of $24,251 and $25,331 received during the September 1997 Quarter and the September 1997 YTD Period was earned on the net proceeds from our initial public offering, which was placed into short-term, highly liquid, low-risk investments. Interest income is expected to decrease in future periods as the proceeds from the initial public offering are used in the operations of the Company. We incurred interest expense of $19,307 and $43,622 during the September 1997 Quarter and the September 1997 YTD Period, respectively, on bridge financing entered into with accredited investors, notes entered into with a related party and an operating line of credit 11 entered into with Biltmore Investors Bank. Related to the bridge financing, we incurred a non-recurring fee of $95,000, which was expensed during the September 1997 Quarter. Although changes in the exchange rate between the U.S. and Canadian currencies may have an impact on the profitability of the Company, we do not expect the impact of these changes to be material to the consolidated financial statements of the Company due to the significantly smaller size of our Canadian operations and to the stable relationship historically of the United States and Canadian currencies. We incurred a loss of $776,475, or $.42 per share during the September 1997 YTD Period inclusive of the non-recurring expenses. Excluding the non-recurring expenses, the net loss was $411,475, or $.22 per share. For the September 1997 Quarter, the net loss inclusive of the non-recurring expenses was $454,110, or $.20 per share and $199,110, or $.09 excluding the non-recurring expenses. This compares to a net loss of $4,078, or $.01 per share for the September 1996 Quarter. For the September 1997 Quarter, both the amount of the loss ($199,110 compared to $212,169) and the loss per share ($.09 compared to $.14), improved from the June 1997 Quarter.
- ------------------------- ---------------- ---------------- ------------------ ---------------- September September 1996 June 1997 September 1997 YTD Quarter Quarter 1997 Quarter Period - ------------------------- ---------------- ---------------- ------------------ ---------------- Net Lost Including Non-recurring Expenses $ (4,078) $ (322,365) $ (454,110) $ (776,475) - ------------------------- ---------------- ---------------- ------------------ ---------------- % of Revenues 3.1% 51.3% 33.1% 38.8% - ------------------------- ---------------- ---------------- ------------------ ---------------- Loss Per Share $ (.01) $ (.22) $ (.20) $ (.42) - ------------------------- ---------------- ---------------- ------------------ ---------------- Non-recurring Expenses $ -0- $ 110,000 $ 255,000 $ 365,000 - ------------------------- ---------------- ---------------- ------------------ ---------------- Net Loss Not Including Non-recurring Expenses $ (4,078) $ (212,365) $ (199,110) $ (411,475) - ------------------------- ---------------- ---------------- ------------------ ---------------- % of Revenues 3.1% 31.8% 14.5% 20.6% - ------------------------- ---------------- ---------------- ------------------ ---------------- Loss Per Share $ (.01) $ (.14) $ (.09) $ (.22) - ------------------------- ---------------- ---------------- ------------------ ----------------
Other Information On September 18, 1997, we announced in a press release that we had increased the number of rollouts of our PCI Cigar Program to over 4000 participating stores. On September 24, 1997, we announced in a press release that we had signed an agreement with Lockwood Publications, Inc, publisher of Smoke Magazine, granting us 12 the exclusive right in North America to market the magazine in the stores that display or sell our PCI Cigar Program. On September 29, 1997, we announced in a press release that we had begun a statewide Arizona rollout, that also included select stores in New Mexico, of our PCI Cigar Program into approximately 700 Circle-K (Tosco Corporation), 7-Eleven (The Southland Corporation) and Giant Industries stores. Capital Resources During the September 1997 Quarter and the September 1997 YTD Period, we made capital purchases, including the purchase of humidors, of $450,956 and $696,025, respectively. As part of our PCI Cigar Program, one humidor is shipped with each new store rollout. The humidor, which remains the property of PCI, is capitalized as an Other Asset and written off over a twenty-four month period. Liquidity Our cash, cash equivalents and short-term investments and our current ratio were:
- ---------------------------- --------------------- ---------------- --------------- --------------------- At September 30, At March 31, At June 30, At September 30, 1996 1997 1997 1997 - ---------------------------- --------------------- ---------------- --------------- --------------------- Cash, cash equivalents and short-term investments $ -0- $ 58,018 $ 26,424 $ 6,926,314 - ---------------------------- --------------------- ---------------- --------------- --------------------- Current ratio .63 .78 1.23 8.32 - ---------------------------- --------------------- ---------------- --------------- --------------------- Situation Start-up company Prior to the With the Following the bridge loans bridge initial public financing offering - ---------------------------- --------------------- ---------------- --------------- ---------------------
We believe that the net proceeds received from our $9,975,000 Initial Public Offering completed August 29, 1997, together with cash flows generated from operations, will be sufficient to meet anticipated expansion and working capital needs for the foreseeable future. If additional funding is required, the Company expects that it will be able to raise capital through the issuance of long-term or short-term debt or the issuance of securities in private or public transactions. However, there can be no assurances that we can generate sufficient revenues or obtain acceptable future financing. 13 Special Note Regarding Forward-looking Statements Some of the statements contained in this report discuss future expectations, contain projections of results of operation or financial condition or state other "forward-looking" information. Those statements are subject to known and unknown risks, uncertainties and other factors that could cause the actual results to differ materially from those contemplated by the statements. The forward-looking information is based on various factors and was derived using numerous assumptions. Important factors that may cause actual results to differ from projections include, for example: o our ability to raise sufficient capital to purchase cigars and humidors to meet any unanticipated increase in the aggressive "roll-out" schedules required by our contracts and commitments with stores and distributors; o the effect of a settlement announced June 20, 1997 of litigation among 40 States and major U.S. tobacco companies; o our ability to buy quality premium cigars at favorable prices; o our ability to negotiate and maintain favorable distribution arrangements with stores affiliated with major national convenience store chains; o the effect of changing economic conditions; o any decision by major retail chains to remove all tobacco products from their shelves or place our humidors in a disadvantageous location within their stores; o changes in government regulations, tax rates and similar matters; o our ability to attract and retain quality employees; o the decline in popularity of cigar smoking; and o other risks which may be described in our future filings with the SEC. We do not promise to update forward-looking information to reflect actual results or changes in assumptions or other factors that could affect those statements. 14 PART II - OTHER INFORMATION Item 1 - Legal Proceedings ----------------- None Item 2 - Changes in Securities and Use of Proceeds ----------------------------------------- (a) None. (b) None. (c) Use of Proceeds. The Company provides the following information in accordance with Item 701(f) of Regulation S-B: 1. The Company's Registration Statement on Form SB-2 (File No. 333-29985) was declared effective on August 21, 1997; 2. The offering commenced on August 21, 1997; 3. The offering did not terminate before any securities were sold; 4(i). On August 29, 1997, the Company closed the sale of 1,900,000 shares of its common stock to W.B. McKee Securities, Inc., the Underwriters' Representative (the "main offering"). On September 24, 1997, W.B. McKee Securities, Inc. purchased 88,592 of the 285,000 shares available for the over-allotment option provided for in the Company's Underwriting Agreement (the "over-allotment offering"). See "Underwriting" section of the Company's Registration Statement on Form SB-2 and Item 5 herein. The over-allotment option on the remaining 196,408 shares of common stock expired on September 29, 1997. Therefore, the main offering terminated on August 29, 1997, after the sale of all of the securities registered; the over-allotment offering terminated on September 29, 1997, with 196,408 registered shares unsold. 4(ii). W.B. McKee Securities, Inc. served as the managing underwriter for the offering. 4(iii). The Company registered common stock, no par value, in its Registration Statement on Form SB-2. 4(iv). The Company registered 2,185,000 shares of common stock, no par value, in its Registration Statement on Form SB-2, for an aggregate offering price of $11,471,250. These figures include the full over-allotment of 285,000 shares; 15 however, as stated above, only 88,592 over-allotment shares were purchased by the Underwriters' Representative. Accordingly, the Company has sold 1,988,592 shares at an aggregate offering price of $10,440,108. 4(v). The amount of expenses incurred through September 30, 1997 in connection with the issuance and distribution of the securities registered was $2,309,444. This amount is made up of $1,044,011 in underwriter's discounts and commissions, $313,203 in underwriter's non-accountable expenses, and $952,230 in other expenses, including $118,662 in consulting fees to directors. 4(vi). The net offering proceeds after deducting the above expenses were $8,130,664. 4(vii). From the effective date of the Company's Registration Statement, August 21, 1997 to September 30, 1997, the net offering proceeds were applied as follows: $1,212,835 to repayment of debt, $156,025 to purchase humidors, $544,186 to purchase inventory, $345,503 for sales and marketing, $137,239 for working capital, $3,411,895 as a temporary investment in six month treasury bills and $2,322,981 as a temporary investment in a money market account. 4(viii). The use of proceeds described above represents no material change from the use of proceeds described in the prospectus. Item 3 - Defaults upon Senior Securities ------------------------------- None Item 4 - Submission of Matters to a Vote of Security Holders --------------------------------------------------- None Item 5 - Other Information ----------------- W.B. McKee Securities, Inc. ("McKee") served as the Representative of the Underwriters in the Company's initial public offering which became effective on August 21, 1997. Under the terms of the Underwriting Agreement, McKee was given an over-allotment option to purchase up to 285,000 shares of the Company's common stock at the public offering price, less certain underwriting discounts and commissions. On September 24, 1997, McKee exercised a portion of the over-allotment and purchased 88,592 of the 285,000 total over-allotment shares. The Company realized total proceeds from the over-allotment exercise of $465,108, minus discounts and commissions of $46,510.80 and non-accountable expenses of $13,953.24, for net proceeds totaling $404,643.96. The over-allotment option on the remaining 196,408 shares of common stock expired on September 29, 1997. For additional information regarding the specific terms and conditions of the Underwriting Agreement, please refer to the "Underwriting" section of the Company's Registration Statement on Form SB-2 (file number 33-29985) declared effective on August 21, 1997, which is incorporated herein by reference as an exhibit to this Form 10-QSB and in response to this item. 16 Item 6 - Exhibits and Reports on Form 8-K -------------------------------- (a) Exhibits
Exhibit Exhibit Name Method of Filing - ------- ------------ ---------------- Number - ------ 3.1 Articles of Incorporation ** 3.2 By-Laws, as amended *** 4.1 Specimen Common Stock Certificate **** 4.2 Description of Rights of Security Holders ***** 10.1 Form of Indemnity Agreements between the Exhibit filed herewith Company and its Officers and Directors 10.2 Marketing and Sales Agreement dated Exhibit filed herewith* September 17, 1997, between the Company and Lockwood Publications, Inc. 10.3 Retailer Agreement dated August 25, 1997, Exhibit filed herewith* between the Company and Tosco Marketing Co. 10.4 Distributorship Agreement dated October 24, Exhibit filed herewith* 1997 between the Company and Irvine Breath Products, Inc. 11.1 Statement Re: Computation of Exhibit filed herewith Per Share Earnings 27.1 Financial Data Schedule Exhibit filed herewith 99.1 "Underwriting" section of Registration ****** Statement on Form SB-2
* Portions of the exhibit omitted and filed separately with the Commission pursuant to the Confidential Treatment provisions of Regulation ss. 230.406. ** Incorporated by reference to Exhibit 3.1 of Registration Statement on Form SB-2 (file no. 333-29985) declared effective on August 21, 1997. *** Incorporated by reference to Exhibit 3.2 of Registration Statement on Form SB-2 (file no. 333-29985) declared effective on August 21, 1997. **** Incorporated by reference to Exhibit 4.2 of Registration Statement on Form SB-2 (file no. 333-29985) declared effective on August 21, 1997. 17 ***** Incorporated by reference to Exhibit 4.1 of Registration Statement on Form SB-2 (file no. 333-29985) declared effective on August 21, 1997. ****** Incorporated by reference to pages 56-57 of Registration Statement on Form SB-2 (file no. 333-29985) declared effective on August 21, 1997. (b) Reports on Form 8-K None 18 SIGNATURES In accordance with the requirements of the Exchange Act, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. PREMIUM CIGARS INTERNATIONAL, LTD. (Registrant) /s/ Steven A. Lambrecht Date: November 14, 1997 - --------------------------------------- Steven A. Lambrecht President & C.E.O. /s/ Karissa B. Nisted Date: November 14, 1997 - --------------------------------------- Karissa B. Nisted Chief Financial Officer 19 EX-10.1 2 OFFICER AND DIRECTOR INDEMNITY AGREEMENT OFFICER AND DIRECTOR INDEMNITY AGREEMENT This Agreement is made as of the ___ day of September, 1997, by and between Premium Cigars International, an Arizona corporation (the "Corporation"), and ___________________ ("Indemnitee"). RECITALS A. The Corporation believes it is important to the Corporation to retain and attract the most capable persons available to serve as executive officers and directors. B. Indemnitee, in the capacity as an executive officer and/or a director of the Corporation, will be performing a valuable service to the Corporation. C. In recognition of Indemnitee's need for substantial protection against personal liability and in order to retain Indemnitee's services as an executive officer and/or a director of the Corporation, the Corporation desires to provide Indemnitee with specific contractual assurances that such protection will be available to Indemnitee as set forth in this Agreement, to the fullest extent (whether partial or complete) permitted by law, and, to the extent officers' and directors' liability insurance is maintained by the Corporation, to provide for the coverage of Indemnitee under the Corporations officers' and directors' liability insurance policies. AGREEMENT NOW, THEREFORE, in consideration of Indemnitee agreeing to serve as an executive officer and/or a director of the Corporation and other good and valuable consideration, the parties hereto hereby agree as follows: 1. Indemnity. The Corporation will indemnify Indemnitee, to the fullest extent allowed by law, against all damages, judgments, fines, assessments, charges, penalties, expenses (including attorneys' fees), and amounts paid in settlement (all hereinafter referred to as "Damages") suffered or incurred by or on behalf of Indemnitee in connection with or arising out of any threatened, pending or completed actions, suit or proceeding, whether civil, criminal, administrative or investigative ("Proceeding") with respect to any event, act, omission, occurrence or circumstance related to the fact that Indemnitee is or was an executive officer and/or a director of the Corporation or an agent of another corporation, partnership, joint venture, trust or other enterprise at the request of the Corporation ("Indemnifiable Event"), including, without limitations, acts or omissions of Indemnitee that constitute negligence. The Corporation shall pay all amounts required to be paid to or on behalf of Indemnitee pursuant to this Agreement as soon as possible, but in any event no later than fifteen (15) days after written demand therefor is presented to the Corporation. 2. Advance Payment of Expenses. Notwithstanding anything to the contrary, promptly upon written request by Indemnitee, expenses (including attorneys' fees) incurred by Indemnitee in connection with defending a civil or criminal action, suit or proceeding shall be paid by the Corporation in advance of the final disposition of such action, suit or proceeding, upon receipt of an undertaking by or on behalf of Indemnitee to repay such amount unless it ultimately shall be determined that he is entitled to be indemnified by the Corporation as required in the Corporation's Articles of Incorporation or authorized by law and may be paid by the Corporation in advance on behalf of any other authorized representative when authorized by the Board of Directors upon receipt of a similar undertaking. 3. Presumptions. The termination (in whole or in part) of any action, suit or proceeding, whether by judgment, order, settlement, conviction, or upon a plea of nolo contendere, or its equivalent, shall not, of itself, create a presumption that Indemnitee did not act in good faith and in a manner which he reasonably believed to be in, or not opposed to, the best interests of the Corporation, and, with respect to any criminal action or proceeding, had reasonable cause to believe that his conduct was unlawful. 4. Partial Indemnification. If Indemnitee is entitled to indemnification, whether pursuant to this Agreement or otherwise, for a portion, but not all, of the Damages, the Corporation shall, nevertheless, indemnify Indemnitee for the portion of the Damages to which Indemnitee is entitled. In addition, the extent that Indemnitee has been successful in defense of any or all Proceedings relating in whole or in part to an Indemnifiable Event, or in defense of any issue or matter (including, without limitation, any dismissal without prejudice), Indemnitee shall be entitled to indemnification against all expenses incurred in connection with those defenses. 5. Indemnification Hereunder Not Exclusive; Change in Law. Nothing in this Agreement shall be deemed to diminish or otherwise restrict Indemnitee's right to indemnification under any provision of the Certificate of Incorporation or Bylaws of the Corporation or under Arizona law. If and to the extent that any change in the law of Arizona (whether by statute or judicial action) permits greater indemnification than would be afforded under the Corporation's then-current Certificate of Incorporation or Bylaws or by this Agreement, it is the intent of the parties that Indemnitee shall enjoy by this Agreement the greater benefits so afforded by such change immediately upon the occurrence of such change, without further action on the part of the parties hereto. 6. Applicable Law. THIS AGREEMENT SHALL BE GOVERNED BY, AND CONSTRUED AND ENFORCED IN ACCORDANCE WITH, ARIZONA LAW, REGARDLESS OF ANY CONFLICT-OF-LAW PRINCIPALS TO THE CONTRARY. 7. Attorneys' Fees. In the event of any claim, controversy or dispute arising out of or relating to this Agreement, or the breach thereof, the prevailing party shall be entitled to recover reasonable attorneys' fees and costs incurred in connection with any such proceeding. 8. Successors and Assigns. This Agreement shall be binding upon and inure to the benefit of the parties hereto and their respective heirs, personal representatives, successors and 2 assigns; provided, however, that Indemnitee may not assign Indemnitee's rights hereunder and that any assignment by the Corporation shall not relieve the Corporation of its obligations hereunder. Any transfer by operation of law, pursuant to a merger or otherwise, shall constitute an assignment. 9. Continuation of Indemnification. The indemnification under this Agreement applied to Indemnitee with respect to Indemnifiable events occurring during Indemnitee's service as an executive officer and/or a director of the Corporation and shall continue beyond any termination of that service as an executive officer and/or a director to the Corporation. 10. Amendment, Modification or Waiver. No amendment, modification or waiver of any condition, provision or term of this Agreement shall be valid or of any effect unless made in writing, signed by the party or parties to be bound and specifying with particularity the nature and extent of such amendment, modification or waiver. Failure on the part of any party to complain of any act or failure to act of another party or to declare another party in default, irrespective of how long such failure continues, shall not constitute a waiver by such party of its rights hereunder. Any waiver by any party of any default of another party shall not affect or impair any right arising from any other or subsequent default. Nothing herein shall limit the remedies and rights of the parties hereto under and pursuant to this Agreement. 11. Counterparts. This Agreement may be executed in any number of counterparts, each of which shall be deemed to be an original. IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed and signed as of the day and year first above written. INDEMNITEE CORPORATION Premium Cigars International, an Arizona corporation By: - ----------------------------- -------------------------------- Steven A. Lambrecht President and Chief Executive Officer 3 EX-10.2 3 MARKETING AND SALES AGREEMENT MARKETING AND SALES AGREEMENT ----------------------------- This Marketing and Sales Agreement ("Agreement") is entered into this 17th day of September, 1997 between Lockwood Publications, Inc., a New York corporation ("Lockwood") and Premium Cigars International, Ltd., an Arizona corporation ("PCI"). RECITALS -------- WHEREAS, Lockwood is the publisher of a magazine named "Smoke Magazine," hereinafter referred to as the "Magazine"; WHEREAS, Lockwood desires to have the Magazine displayed in retail outlets with PCI's humidors, cigars and cigar-related products (the "PCI Products"); and WHEREAS, PCI desires to receive and Lockwood desires to grant to PCI the right to market the Magazine for display with the PCI Products. NOW, THEREFORE, for good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, Lockwood and PCI agree as follows: 1. Marketing Rights. a. Right to Market. Lockwood grants to PCI the exclusive right to market the Magazine to all retailers which display or sell the PCI Products in North America (the "Retailers"). During the term of this Agreement, neither Lockwood nor any representatives of Lockwood shall be entitled to market the Magazine to any such Retailers. PCI shall have no duty, right or other obligation to market the Magazine to, or to maintain any relationship with, any Retailer which has discontinued and no longer carries the PCI Products. The parties hereto acknowledge that "Smoke Magazine" is the featured magazine of PCI. However, nothing contained within this Agreement shall limit PCI's right to market, sell or distribute any products, including other magazines, with the PCI Products. b. Right of First Refusal. PCI shall notify Lockwood in writing of its desire to sell the Magazine outside of North America through any entity other than Lockwood. Lockwood shall have thirty (30) days after the receipt of such notice within which to notify PCI if it desires to enter a contract with PCI to sell the Magazine outside of North America. 2. Commission. PCI shall be entitled to receive commissions based on the number of Magazines sold to Retailers as set forth below: * Confidential portions omitted and filed separately with the Commission. 1 a. Wholesaler Commission. * (the "Wholesaler Commission"). b. Standard Commission. * (the "Standard Commission"). * The Standard Commission and the Wholesaler Commission shall collectively be referred to as the "Commissions." The parties acknowledge that the current cover price of the Magazine is $4.99 U.S. / $5.99 Canada. 3. Payment of Commissions. Commissions shall accrue immediately upon the receipt of a Retailer's order by Lockwood or Lockwood's distributor of the Magazine. All Commissions accrued shall be paid on or before the 30th day after the "on sale date" of each subsequent issue of the Magazine, and such payments shall be accompanied by a statement setting forth the number of units sold and the number of units refunded or credited for that prior issue of the Magazine. The "on sale date" shall mean the first business day an issue of the Magazine is offered for sale to the general public through Retailers. If Lockwood refunds or grants a credit for the sale of any of the Magazines, no Commission shall be paid by Lockwood to PCI for such sale. If the Commission for such sale has already been paid by Lockwood to PCI, the amount of the Commission payment shall be deducted from future Commission payments thereafter payable to PCI. If no further Commissions are thereafter payable to PCI, such payment shall be returned to Lockwood. 4. Additional Compensation. In addition to the Commissions and in order to entice PCI to enter into this Agreement, Lockwood agrees to provide the following: a. * b. * 5. Delivery. Lockwood shall use its best efforts to fill all orders and deliver the Magazine through Curtis Circulation or another reliable common carrier, at Lockwood's sole expense, in a timely fashion. Prior to the print order due date, PCI shall provide to Lockwood an estimate of the number of Magazines to be sold by or through PCI for such issue of the Magazine. The parties hereto acknowledge that no assurance can be given as to the accuracy of such estimate. 6. Term. Subject to the terms set forth in paragraph 7 herein, the term of this Agreement shall be for two (2) years from the date hereof and shall automatically be renewed annually for three (3) additional one year periods, unless one hundred twenty days (120) days prior to the expiration of the applicable term one party notifies the other party in writing that it intends to terminate this Agreement. The parties acknowledge that, in the event a Retailer should cancel its contract with PCI for maintaining a humidor in its store, upon such cancellation any obligation or duties owed by PCI to Lockwood would terminate as to such store. * Confidential portions omitted and filed separately with the Commission. 2 7. Early Termination of This Agreement. a. Termination by PCI. PCI shall have the absolute right to terminate this Agreement upon delivery of written notice to Lockwood one hundred twenty (120) days prior to termination in the event that PCI determines, in its sole and exclusive discretion, that the Magazine's volume of sales is insufficient to provide PCI with reasonable profitability. b. Termination by Either Party. Lockwood or PCI shall have the right to terminate this Agreement in the event one or more of the following events shall occur, provided the non-defaulting party sends notice of such default to the defaulting party and the defaulting party fails to remedy such breach within thirty (30) days after receipt of such written notice of default: (i) either party makes an assignment for the benefit of creditors, or a receiver, trustee in bankruptcy, or similar officer is appointed to take charge of all or any part of such party's property or business; (ii) either party is adjudicated bankrupt; or (iii) either party fails to timely perform or observe any of its covenants, duties or obligations hereunder. c. Remedies of the Parties. In the event either party is in default hereunder and such default has not been cured during the applicable cure period, the non-defaulting party may pursue all of its real and equitable rights and remedies against the defaulting party. 8. Acts Upon Termination. Upon termination of this Agreement, Lockwood agrees that it shall continue to supply all orders from any Retailers for a period of two (2) months (the "Continuation Period"). PCI shall be entitled to a Commission for all sales to Retailers during such Continuation Period. 9. Indemnification. PCI and Lockwood shall indemnify and hold each other and their respective officers, directors, shareholders, employees, representatives and agents harmless from any loss, damages, expenses (including, without limitation, reasonable attorneys' fees and expenses) resulting from a breach of terms, conditions and covenants hereunder. 10. Independent Contractor. This Agreement shall in no way be construed to constitute PCI as an agent or employee of Lockwood for any purpose whatsoever, PCI being an independent contractor engaged by Lockwood to perform the services set forth herein. 11. Confidential Information. The parties recognize that as a result of the relationship with each other, the parties have in the past and may in the future develop, obtain or learn about Confidential Information which is the property of PCI or Lockwood or which PCI or Lockwood * Confidential portions omitted and filed separately with the Commission. 3 is under an obligation to treat as confidential. Each party agrees to use its best efforts and the utmost diligence to guard, protect and keep confidential said Confidential Information, and each party agrees that it will not, during or after the period of this Agreement, use for its own purposes or others any of said Confidential Information which either party may develop, obtain or learn about during or as a result of its relationship with the other party, unless authorized to do so by the other party in writing. For the purposes of this Agreement, the term "Confidential Information" shall include but not be limited to the following: customer lists; financial statements or information in any form; marketing strategies; business contacts; business plans; computer software, including all rights under licenses and other contracts relating thereto; all intellectual property including all patents, trademarks, trademark registration and applications, service marks, copyrights, trade secrets, proprietary marketing information and know-how; books and records including lists of customers; credit reports; sales records; price lists; sales literature; advertising material; manuals; processes; technology; or any information of whatever nature which gives to PCI an opportunity to obtain an advantage over their competitors who do not know or use it. The parties acknowledge that the sales numbers set forth in the ABC Auditing Report are reported to Lockwood's members and its affiliates. PCI agrees to cooperate in providing the appropriate sales numbers for an audit. Both parties acknowledge that PCI, as a public company, shall provide notice of this contract in press releases and reports filed with the Securities and Exchange Commission. Lockwood and its officers, directors, shareholders, employees, representatives and agents agree that they shall not contact directly or indirectly any of PCI's customers or companies with which PCI does business, or are affiliated with in any way, or any third parties which have any direct or indirect business dealings with PCI without the prior consent of PCI. Notwithstanding the foregoing, PCI gives Curtis Circulation and its wholesalers consent to contact PCI customers in connection with the normal course of business conducted pursuant to the terms of this Agreement. 12. Notices Any notice or other communication required or permitted to be given hereunder shall be in writing and shall be delivered in person, sent by telefacsimile or sent by * Confidential portions omitted and filed separately with the Commission. 4 registered mail, charges prepaid, to the parties at the address or facsimile telephone as set forth on the signature page of the Agreement and a copy sent to: If Notice sent to PCI send a copy to: Kurt M. Brueckner Titus, Brueckner & Berry, P.C. 7373 North Scottsdale Road, Suite B-252 Scottsdale, Arizona 85253 (602) 483-9600 Fax: (602) 483-3215 If Notice sent to Lockwood send a copy to: Peter M. Messer, P.C. Attorney at Law 21 East 40th Street New York, New York 10016 (212) 481-5600 Fax (212) 213-9673 13. Applicable Law. This Agreement shall be construed, interpreted and enforced in accordance with, and the respective rights and obligations of the parties shall be governed by, the laws of the State of Arizona, and each party irrevocably and unconditionally submits to the exclusive jurisdiction and venue of the courts of Maricopa County, State of Arizona and all courts competent to hear appeals therefrom. 14. Successors and Assigns. This Agreement shall inure to the benefit of and shall be binding on and enforceable by the parties and their respective successors and permitted assigns, as the case may be. Except as provided for herein, neither party shall have the right to assign its rights hereunder, without the prior written consent of the other party. 15. Amendment and Waivers. No amendment or waiver of any provision of this Agreement shall be binding on either party unless consented to in writing by such party. No waiver of any provision of this Agreement shall constitute a waiver of any other provision, nor shall any waiver constitute a continuing waiver unless otherwise provided. 16. Severability. If any provision of this Agreement is determined by a court of competent jurisdiction to be invalid, illegal or unenforceable in any respect, such determination shall not affect or impair the validity, legality or enforceability of the remaining provisions hereof and each provision is hereby declared to be separate, severable and distinct. 17. Attorneys' Fees. In the event of the bringing of any action or suit by a party hereto against another party hereunder by reason of any breach of any of the covenants, agreements or provisions on the part of the other party arising out of this Agreement, then in that event the prevailing party shall be entitled to have and recover from the other party all costs and expenses of the action or suit, including reasonable attorneys' fees and costs. * Confidential portions omitted and filed separately with the Commission. 5 18. Execution and Counterparts. This Agreement may be executed in counterparts, each of which shall constitute an original and all of which taken together shall constitute one and the same instrument. IN WITNESS WHEREOF this Agreement has been executed by the parties hereto as of the date first written above. "PCI" "LOCKWOOD" PREMIUM CIGARS INTERNATIONAL, LTD. LOCKWOOD PUBLICATIONS, INC. By: /s/ Steven A. Lambrecht By: /s/ Illegible -------------------------- ----------------- Its: CEO / President Its: President/Publisher -------------------- ----------------------- Address: Address: 15651 North 83rd Way 130 West 42nd Street Suite 3 New York, NY 10036 Scottsdale, Arizona 85260 Fax: 212-827-0945 Fax: 602-922-8656 * Confidential portions omitted and filed separately with the Commission. 6 EX-10.3 4 PCI RETAILER AGREEMENT PCI RETAILER AGREEMENT ================================================================================ VENDOR: RETAILER: Tosco Marketing Co. PREMIUM CIGARS INTERNATIONAL, LTD. Circle K 11259 East Via Linda, Suite #100-102 * 602-657-0200 (Office) 602-661-6026 (Facsimile) * 800-PCI-1001 (Toll Free) ================================================================================ Effective Date: August 25, 1997 1. TERM OF AGREEMENT. The initial term of this Agreement shall be for one (1) calendar year from the Effective Date (the "First Term"). This Agreement shall automatically renew at the expiration of the First Term for up to three (3) additional one (1) year terms (each an "Additional Term") unless either party, at least thirty (30) calendar days prior to the end of the then existing First Term or Additional Term, gives written notice to the other party that this Agreement shall not renew. Notwithstanding the forgoing, either party may terminate this Agreement at any time upon one hundred twenty (120) days prior written notice to the other party of such termination. 2. GENERAL RETAILER OBLIGATIONS. Retailer agrees to use its standard business practices to actively promote, in lawful ways, the marketing and sale of Vendor's products (the "Vendor Products") to customers at each retail location of Retailer listed on exhibit "A" attached hereto (each a "Retail Location"). Retailer shall conduct its operations at each Retail Location in a manner which shall not reflect adversely upon the reputation, quality or credibility of Vendor or the Vendor Products and shall comply with all applicable federal, territorial, state and local laws and regulations in performing its duties hereunder. Furthermore, in the event that Retailer becomes aware of any material complaints, charges or claims concerning Vendor or the Vendor Products, Retailer shall notify Vendor of such complaints, charges or claims. If requested by Vendor, Retailer shall consult with Vendor regarding mutually agreeable actions to be taken by Retailer regarding any such complaints, charges or claims. 3. CONTACT PERSON. Retailer shall provide Vendor with the name and phone number of the person responsible for communications with Vendor regarding this Agreement. At the request of Vendor, Retailer shall provide Vendor with any changes to the name or phone number of such person after the occurrence of such changes. 4. HUMIDORS. All Vendor Products shall only be displayed in and sold from humidors or other display units (each a "Vendor Humidor" and collectively "Vendor Humidors") provided or sold to Retailer by Vendor or an authorized distributor of Vendor Products (a "Vendor Distributor") pursuant to this Agreement. Either Vendor or a Vendor Distributor shall provide Retailer with the Vendor Humidors required for the sale of Vendor Products at each Retail Location. Neither Vendor nor the Vendor Distributor shall charge Retailer for the first Vendor Humidor required for each display position at a Retail Location (each a "First Vendor Humidor" and collectively "First Vendor Humidors"). Retailer shall be responsible for the care of all Vendor Humidors placed in or at a Retail Location. Any damaged (except by normal wear and tear), lost or stolen Vendor Humidors shall be repaired or replaced by Vendor or a Vendor Distributor, with the cost of any such repairs or replacements being charged to and paid by Retailer. The cost to Retailer for the replacement of a * Confidential portions omitted and filed separately with the Commission. Vendor Humidor shall be prorated to the Retailer based upon * schedule of PCI's cost as set forth in Exhibit "A" attached hereto and hereby incorporated by reference. Any repair or replacement of a Vendor Humidor due to manufacturing defects or normal wear and tear shall be made by Vendor or a Vendor Distributor at no charge or cost to Retailer. 5. HUMIDOR PLACEMENT. Retailer agrees to have at least one (1) Vendor Humidor prominently displayed at each Retail Location in full view of a primary traffic location. 6. PRODUCTS AND DISPLAYS: OWNERSHIP. Only Vendor Products may be placed in or on Vendor Humidors or sold in, on, or from Vendor Humidors. Retailer and each Retail Location shall display only such labels, displays or signs in or on the Vendor Humidors as are mutually agreeable to Vendor and Retailer. All Vendor Humidors provided to Retailer pursuant to this Agreement, including replacements for damaged, lost or stolen Vendor Humidors, shall be and shall remain the property of Vendor. Upon the termination of this Agreement for any reason, Retailer shall return to Vendor, within thirty (30) calendar days of such termination, all Vendor Humidors provided to Retailer pursuant to this Agreement. Any and all costs of the return of Vendor Humidors pursuant to this Section 6 shall be paid by Vendor. 7. PAYMENT. Retailer shall pay for all Vendor Products placed in a Vendor Humidor at each Retail Location. Such payment shall be made on the following terms: * otherwise. 8. WARRANTIES AND REPRESENTATIONS. As of the date of this Agreement, each party represents and warrants that: (i) it holds all necessary federal, state and local licenses and permits required for the sale, distribution and marketing of Vendor Products to customers in accordance with applicable law (the "Required Permits"); (ii) there are no actions or proceedings pending or contemplated within its knowledge that would in any way jeopardize any Required Permits; (iii) it is in good standing under the laws of the state in which it is located, has all requisite corporate or organizational authority required to perform its obligations under this Agreement and has taken all corporate or organizational actions required for the performance of its obligations under this Agreement and (iv) its performance of its obligations under this Agreement will not violate any agreement or contract to which it is a party. Each party agrees to use commercially reasonable efforts to ensure that the above representations and warranties shall remain true throughout the term of this Agreement and will notify the other party, in writing, of any material changes of the above conditions. 9. POLICIES AND PROCEDURES. Any and all marketing or sales materials related to the Vendor Products shall be mutually agreeable to Vendor and Retailer and, if Vendor notifies Retailer that any such materials are objectionable to Vendor, then Retailer shall work with Vendor to reasonably resolve such objections to the mutual satisfaction of both Vendor and Retailer. Retailer shall not make false or misleading representations or claims with respect to Vendor or the Vendor Products. Retailer shall also refrain from communicating, as being binding on Vendor, any representations, guarantees or warranties with respect to the Vendor Products, except as expressly authorized by Vendor in writing or are set forth in written materials provided by Vendor. 10. INDEPENDENT CONTRACTOR. Vendor and Retailer specifically agree that for all purposes hereunder, Retailer is, and shall be deemed to be, an independent contractor. Neither Retailer nor Retailer's employees, agents or representatives shall be deemed to be employees, agents * Confidential portions omitted and filed separately with the Commission. or representatives of Vendor, nor shall any of them have the power to enter into any contract, agreement or obligation on behalf of Vendor or to otherwise legally bind Vendor in any way, nor enlarge upon or extend any warranty or representation regarding Vendor Products beyond that made by Vendor or the manufacturer of such products. Retailer shall be responsible for obtaining and paying for any and all costs, bonds, insurance and licenses required for Retailer's distribution, sale and marketing of the Vendor Products. Retailer shall also be further responsible for the collection, payment and reporting of any and all taxes required to be paid and/or reported by Retailer by any federal, state, territorial or local government including, but not limited to, any and all sales, use, employee, withholding and valued added taxes. Notwithstanding the foregoing, Vendor shall be responsible for paying tobacco taxes required by any federal, state, territorial or local government to be paid on or for the Vendor Products. 11. RELATED PRODUCTS. During the term of this Agreement and any other period that Retailer sells or markets the Vendor Products, Retailer hereby agrees not to sell or market, either directly or indirectly, any cigars or cigar products, other than the Vendor Products, in, on or from humidors. 12. INDEMNIFICATION. Each party agrees to and does hereby fully indemnify and hold harmless the other party and any of the other party's affiliates, successors, assigns, officers, directors, shareholders, employees, and agents (the "Indemnified Parties"), from and against any and all losses, damages, liabilities, obligations, judgments, settlements, costs and other expenses incurred or suffered by the Indemnified Parties by reason of the assertion of any claim or the institution of any litigation against them during the term of the Agreement or subsequent to its expiration or termination, which is directly or indirectly based upon or related to any acts or omissions of such party (the "Indemnifying Party") or the Indemnifying Party's employees or agents, or which are directly or indirectly based upon or related to any breach of the Agreement by the Indemnifying Party. The Indemnifying Party shall assume the defense, at its sole expense, of any claim or litigation as to which it has an indemnification obligation hereunder. If the Indemnifying Party fails to do so, the Indemnified Parties shall have the right to assume their own defense, and the Indemnifying Party shall be obligated to reimburse the Indemnified Parties for any and all reasonable expenses (including, but not limited to, attorneys' fees) incurred in the defense of such claim or litigation, in addition to the Indemnifying Party's other indemnity obligations hereunder. Notwithstanding the foregoing, Vendor shall neither be responsible nor indemnify Retailer for any liability resulting from or related to the Vendor Products that is caused by, based on or related to any spoilage, damage or other modification of the Vendor Products related to or resulting from the acts of or omissions of Retailer or Retailer's employees, agents, contractors or affiliates. 13. PRODUCT WARRANTIES. Vendor warrants that, prior to and at the time of delivery of Vendor Products to Retailer, all Vendor Products shall be merchantable for their intended use and shall be in compliance with all applicable state and federal laws and regulations. Any and all other warranties, whether implied, express or arising pursuant to applicable law and relating to the Vendor Products, are hereby disclaimed to the maximum extent possible under applicable law. Furthermore, Vendor shall not be liable to Retailer for any loss of profit or any indirect, special, incidental or consequential damages in connection with or arising from the Vendor Products unless advised in writing of the possibility of such damages prior to or at the time of the ordering by Retailer of such Vendor Products. * Confidential portions omitted and filed separately with the Commission. 14. GOODWILL. Retailer agrees that it neither has, nor will acquire, any vested or proprietary right or interest with respect to the marketing and sale of Vendor Products, and that any such goodwill created or increased during the term of this Agreement shall be considered the property of Vendor. 15. AGREEMENT TO PERFORM NECESSARY ACTS. Each party to this Agreement agrees to perform any further acts reasonably required under the terms of this Agreement and to execute and deliver any documents which may be reasonably necessary to carry out the provisions of this Agreement. This Agreement, together with any exhibits, schedules and other documents contemplated hereby, constitute the final written expression of all of the agreements between the parties, and is a complete and exclusive statement of those terms. It supersedes all understandings and negotiations concerning the matters specified herein. Any representations, promises, warranties or statements made by any party that differ in any way from the terms of this written Agreement, and the exhibits, schedules and other documents contemplated hereby, shall be given no force or effect. 16. CONFIDENTIALITY. Other than to their accountants and lawyers or as otherwise required by applicable law or for their performance of their obligations under this Agreement, the parties agree, during the term of this Agreement and for a period not to exceed two (2) years thereafter, not to (i) publicly announce or disclose the terms of this Agreement or (ii) directly or indirectly issue or permit the issuance of any publicity whatsoever regarding the existence or terms of this Agreement. 17. GOVERNING LAW: ATTORNEY'S FEES. This Agreement has been made and entered into in the State of Arizona and shall be construed in accordance with the laws of the State of Arizona, United States of America, excluding its choice of law provisions. The parties agree that the Courts of Arizona, including Maricopa County, Arizona Superior Court shall be the proper and exclusive forum for any action relating to a dispute between the parties arising out of, or related to, this Agreement. Each party consents to the in personam jurisdiction of said court. The prevailing party in any dispute arising under this Agreement shall be entitled to receive its costs, fees, and expenses, including attorneys' fees. Reasonable attorneys' fees shall be determined by the court and not a jury. 18. SURVIVAL. Any obligation or agreement herein which has not been or cannot be fully performed prior to the termination or expiration of this Agreement, including, but not limited to, the provisions of Sections 1 1 and 12 above, shall survive such termination or expiration. 19. NOTICES. The service of any notice provided for in this Agreement shall be complete and effective on the date such notice is placed in the United States Mail, certified or registered with return receipt requested, postage prepaid, and addressed to the respective parties as first written above. 20. SECTION HEADINGS. The section headings contained in this Agreement are for convenience only and shall in no manner be construed as a part of this Agreement. 21. SEVERABILITY. In case any one or more of the provisions contained in this Agreement shall for any reason be held to be invalid, illegal, or unenforceable in any respect, such * Confidential portions omitted and filed separately with the Commission. invalidity, illegality, or unenforceability shall not affect any other provision, and this Agreement shall be construed as if such invalid, illegal, or unenforceable provision had never been included in the Agreement. 22. BINDING ON SUCCESSORS AND ASSIGNS. Subject to the provisions herein, all covenants and agreements in this Agreement shall extend to and be binding upon the heirs, legal representatives, successors and assigns of the respective parties hereto. IN WITNESS WHEREOF the parties hereby agree to the above and execute this Agreements as of the Effective Date. "Vendor" "Retailer" Premium Cigars International, Ltd. By: /s/ Steven Lambrecht By: /s/ * -------------------------- ------------------ Its: C.E.O. Its: [authorized officer] ------------------------ --------------------------- * Confidential portions omitted and filed separately with the Commission. EXHIBIT "A" * Confidential portions omitted and filed separately with the Commission. EX-10.4 5 DISTRIBUTORSHIP AGREEMENT DISTRIBUTORSHIP AGREEMENT ------------------------- This Distributorship Agreement ("Agreement") is entered into this ____ day of October, 1997 between Cigar Gone Corporation, a Delaware corporation aka: Irvine Breath Products, Inc., a Delaware corporation (collectively "Cigar Gone"), and Premium Cigars International, Ltd., an Arizona corporation ("Distributor"). Cigar Gone and Distributor shall also be referred to as the "Parties". RECITALS -------- WHEREAS, Cigar Gone is engaged in the production and sale of breath cleansers, which are marketed under the tradenames "Cigar Gone Breath Cleanser" and "Coffee Gone Breath Cleanser", hereinafter referred to as the "Breath Cleansers"; WHEREAS, Cigar Gone has designed a mini pack to hold eight (8) capsules of Breath Cleanser (the "Mini-Pack"), a display box to hold thirty-six (36) Mini-Pack (the "Display Box") and bottles to hold fifty (50) capsules of Cigar Gone Breath Cleanser ("CG Bottle"); WHEREAS, collectively, the Cigar Gone Breath Cleanser, the Coffee Gone Breath Cleanser, the Mini-Pack; the Display Box; the CG Bottle; and any of the breath products which may be developed by Cigar Gone are herein referred to as the "Product" or "Products"; WHEREAS, Distributor desires to become the Master Distributor (as that term is defined herein) of the Product in the United States and Canada (the "Distribution Area"); WHEREAS, Distributor desires to receive and Cigar Gone desires to grant to Distributor the right to serve as the Master Distributor of the Products in the Distribution Area; NOW, THEREFORE, for good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, Cigar Gone and Distributor agree as follows: 1. Right to Sell. Cigar Gone grants to Distributor the right to serve as "Master Distributor" for the Product. "Master Distributor", for the purpose of this Agreement, shall be defined as the exclusive purchaser of the Product for the resale of such Product in the Distribution Area, including without limitation, those stores, chains, and retail outlets set forth on Exhibit "A" attached hereto. The Master Distributor shall have the authority to * Confidential portions omitted and filed separately with the Commission. enter into sub-distributorships with other persons or entities in the Distribution Area for the retail or wholesale of the Product (e.g., McLane and Core-Mark). During the term of this Agreement, Cigar Gone agrees not to enter into any distributorship agreements for the sale of the Product in the Distribution Area (as defined above) other than through Distributor. During the term of this Agreement, Cigar Gone or any entity in which Cigar Gone has an ownership interest further agrees not to purchase, sell, distribute or deal in cigar products or breath products which are similar to or compete, directly or indirectly, with the Product within the Distribution Area. During the term of this Agreement, Distributor agrees not to purchase, sell, distribute or deal in breath products which are similar to or directly compete with the Cigar Gone Product in the Distribution Area. * 2. Marketing Efforts. The Distributor intends to attach the Product to the humidors it distributes to various retail outlets and shall make such efforts as it deems appropriate, in its sole discretion, to market the Product to retailers. Distributor agrees not to sell or deliver any of the Products outside of the Distribution Area or deliver any of the Products for resale or use outside of the Distribution Area without first obtaining Cigar Gone's prior written consent, which consent shall not be unreasonably withheld or delayed. Should Cigar Gone desire to sell the Product to any foreign distributors, Cigar Gone shall give ten (10) days written notice to Distributor prior to entering into any agreement. Distributor shall have the option to distribute to any such foreign destinations on terms to be agreed to by the Parties. Cigar Gone shall forward to Distributor any retail or distributorship leads which Cigar Gone may receive in order that Distributor may pursue such leads, and Cigar Gone will forward to Distributor all contacts made in the Distribution Area which may benefit Distributor. It is understood that Cigar Gone will continue to market for sale its Products to potential customers, provided that Cigar Gone shall not arrange sales for less than the suggested retail or wholesale prices as set forth in Paragraph 9, and that all sales are subject to the final approval of Distributor. Cigar Gone shall immediately deliver invoices for any such sales to Distributor for distribution. All sales commissions from the sales of the Products created by Cigar Gone's personnel or agents shall be the sole responsibility of Cigar Gone, and all sales commissions from the sales of the Products created by Distributor's personnel or agents shall be the sole responsibility of Distributor. Distributor and Cigar Gone will cooperate with advertising done in trade, consumer, in-house advertising programs and radio or TV ads. The respective costs for each party and all other terms relating to advertising shall be agreed to in writing by both parties prior to either party entering into any commitments. Upon the invitation of Distributor and approval of Cigar Gone, Cigar Gone may work with and join Distributor in shows, conventions, events or parties that include Cigar Gone's * Confidential portions omitted and filed separately with the Commission. 2 Products. Cigar Gone will also name Distributor as its "Exclusive Distributor" in any stories created by its publicist Larry Feldman and Associates. 3. Packaging. Cigar Gone will supply top quality soft gelcaps to Distributor in either the Mini-Packs or the CG Bottles. Cigar Gone will supply high quality foil packs for the Breath Cleansers. In conjunction with the Mini-Packs, Cigar Gone shall supply Display Boxes for holding the Mini-Packs, along with self-adhesive clip strips, of the same quality as those supplied to Distributor's Phoenix office on October 22, 1997. * Cigar Gone shall give Distributor 30 days written notice prior to implementing any change in the Products or the packaging of the Products. Any changes in the count or quality of the Display Boxes or any change in the contents or quality of the Products shall be subject to Distributor's prior written approval. 4. Independent Contractor. This Agreement shall in no way be construed to constitute the Distributor as an agent or employee of Cigar Gone for any purpose whatsoever, the Distributor being an independent contractor engaged by Cigar Gone to perform the services set forth herein. 5. Term. Subject to the terms set forth in paragraphs 11 and 12 herein, the term of this Agreement shall be for two (2) years from the date hereof and shall automatically be renewed annually for three (3) one year period unless thirty (30) days prior to the expiration of the applicable term one party notifies the other party in writing that it intends to terminate this Agreement. 6. Purchase Price. During the term of this Agreement, Distributor shall pay to Cigar Gone a purchase price per Mini-Pack and per CG Bottle, as set forth in Exhibit "B" hereto (the "Purchase Price"). Clipstrips shall be provided to Distributor at no cost to Distributor as necessary to provide marketing racks for Distributor's humidors. 7. * 8. Customer Billing. Distributor will handle all billing of Distributor's and Cigar Gone's sales orders, except for the sale to those exempted entities pursuant to paragraph 2. The terms and conditions of billing will be COD to single stores that are not credit-approved and COD charges will be billed to stores, net ten to multiple stores currently doing business with Cigar Gone and 30 days to all other distributors or chains that have supplied credit applications to Distributor and are approved by Distributor. Any term in excess of 30 days must be approved by both Parties. All Products purchased by Distributor or any customer of Distributor or Cigar Gone will be on a Cigar Gone guaranteed sale basis unless otherwise stated on the purchase order. * Confidential portions omitted and filed separately with the Commission. 3 9. Suggested Pricing. The minimum suggested retail and wholesale prices are set forth below: Retail Wholesale ------ --------- Mini-Pack $0.99 per pack * CG Bottle $4.98 per bottle * * 10. Purchase Requirements. Distributor shall order from Cigar Gone as much of the Product as it deems appropriate in its sole discretion, and Cigar Gone shall provide sufficient amounts of the product to satisfy Distributor's distribution requirements. Cigar Gone and Distributor specifically agree that Distributor shall have no minimum purchase requirement. 11. Delivery. Delivery will be made to Distributor at 15651 North 83rd Way, Suite 3, Scottsdale, Arizona 85260, or at such other destinations within the Distribution Area which Distributor may designate from time to time. Delivery designations will be limited to Seattle, Vancouver, Scottsdale and CanAm. Cigar Gone shall fill all orders and deliver the Product by a reliable common carrier, at Cigar Gone's sole expense, within ten (10) days from the receipt of Distributors' orders. Distributor will warehouse the Products in a climate controlled building. Distributor will ship the Products to all of its clients and to any of Cigar Gone's clients, via UPS, FEDEX, or any other shipping service of Distributor's choice, within ten (10 days of any customer order. Shipping charges will be billed to the customer unless other prior arrangements have been negotiated. In any event when the customer does no pay shipping, Distributor will reach an agreement in writing with Cigar Gone for the payment of shipping costs prior to shipping. 12. Risk of Loss; Insurance. The risk of loss during transit, delivery and storage of the Products shall be borne by Cigar Gone. Cigar Gone, at its expense, shall secure and maintain comprehensive general liability insurance for the full value of all Products shipped to Distributor by Cigar Gone during the period of shipment. Distributor shall be named as an additional insured on all policies of insurance purchased by Cigar Gone for such purposes. 13. Termination Upon Notice. Both parties shall have the absolute right to terminate this Agreement upon delivery of written notice to the other party one hundred twenty (120) days prior to termination. 14. Default by Cigar Gone - Early Termination of This Agreement. Cigar Gone shall be in default, and Distributor shall have the right to terminate this Agreement, in the event that one or more of the following events shall occur: * Confidential portions omitted and filed separately with the Commission. 4 (a) Cigar Gone makes an assignment for the benefit of creditors, or a receiver, trustee in bankruptcy, or similar officer is appointed to take charge of all or any part of Cigar Gone's property or business; (b) Cigar Gone is adjudicated bankrupt; or (c) Cigar Gone neglects or fails to timely deliver any orders which Distributor may make pursuant to the Agreement or to perform or observe any of its other covenants or obligations hereunder. 15. Default by Distributor. Early Termination of This Agreement. The Distributor shall be in default and Cigar Gone shall have the right to terminate this Agreement if, after notice and expiration of the cure period as provided in Section 14 below, Distributor has failed to pay Cigar Gone any amounts owing pursuant to this Agreement. 16. Opportunity to Cure Default. Distributor shall have thirty (30) days from the date of notice of default to cure any condition creating a default. If the default pursuant to this section shall be a monetary default, then all sums due and payable as of the expiration of the cure period shall bear interest at the rate of twelve percent (12%) per annum until paid. 17. Indemnification. Distributor shall not be liable for, and Cigar Gone shall indemnify and hold Distributor and its officers, directors, shareholders, employees, agents harmless from, any loss, damage, expense (including without limitation attorney fees and expenses) claimed to have resulted from the use, operation, or performance of the Product or related in any way to its acquisition, regardless of the form of action. 18. Acts Upon Termination. Upon termination of this Agreement the parties agree as follows: (a) Distributor shall immediately cease the advertising and sale of the Product and its rights as Master Distributor shall cease. (b) Cigar Gone shall repurchase all of the Product in the possession of the Distributor or in transit to the Distributor at the time of termination at the full Purchase Price. Cigar Gone shall provide, at its expense, for the removal of the Products from the Distributor's premises. (c) Cigar Gone, at its option, may ship, deliver or consign any of the Product to any other person, firm, distributor, or corporation in the Distribution Area or elsewhere and may cancel all orders from the Distributor for the Product which may have been placed prior to the termination. * Confidential portions omitted and filed separately with the Commission. 5 (d) Cigar Gone may stop in transit and take possession of the Products shipped to the Distributor which are still in transit. (e) Cigar Gone shall abide by its obligations pursuant to Section 16 herein regarding Confidential Information. Notwithstanding anything contained herein to the contrary, Distributor shall be allowed to maintain and/or order a quantity of the Product necessary to fulfill any outstanding orders it may have to retailers or sub-distributors of the Product at the time of termination. 19. Confidential Information. Both parties recognize that as a result of this Agreement, both parties have in the past and may in the future develop, obtain or learn about Confidential Information which is the property of Distributor or Cigar Gone, or which Distributor or Cigar Gone is under an obligation to treat as confidential. Both parties agree to use their best efforts and the utmost diligence to guard, protect and keep confidential said Confidential Information, and both parties agree that they will not, during or after the period of this Agreement, use for themselves or others, or divulge to others any of said Confidential Information which either party may develop, obtain or learn about during or as a result of this Agreement and the distribution relationship, unless authorized to do so in writing by the other party. For the purposes of this Agreement, the term "Confidential Information" shall include but not be limited to the following: customer lists; financial statements or financial information in any form; marketing strategies; business contacts; business plans; computer software, including all rights under licenses and other contracts relating thereto; all intellectual property including all patents, trademarks, trademark registration and applications, service marks, copyrights, trade secrets, proprietary marketing information and know-how; books and records including lists of customers; credit reports; sales records; price lists; sales literature; advertising material; manuals; processes; technology; or any information of whatever nature which gives to Distributor an opportunity to obtain an advantage over their competitors who do not know or use it. Both parties acknowledge that Distributor, as a public company, shall provide notice of this Agreement in press releases and reports filed with the Securities and Exchange Commission. Both parties and their officers, directors, shareholders, employees, representatives and agents agree that they shall not contact directly or indirectly any of the other party's customers or companies with which the other party does business, or is affiliated with in any way, or any third parties which have any direct or indirect business dealings with the other party, without the prior consent of the other party. * Confidential portions omitted and filed separately with the Commission. 6 20. Intellectual Property. Cigar Gone shall retain ownership of all marks, trademarks and confidential ingredients of the Cigar Gone and Coffee Gone Breath Cleansers or any other products sold or created by Cigar Gone. However, Distributor shall have the exclusive right to use any trademarks, or other marks and intellectual property for the Products in Distributor's advertisements. 21. Notices Any notice or other communication required or permitted to be given hereunder shall be in writing and shall be delivered in person, sent by telefacsimile or sent by registered mail, charges prepaid, to the parties at the address or facsimile telephone as set forth on the signature page of the Agreement and a copy sent to: Kurt M. Brueckner Titus, Brueckner & Berry, P.C. 7373 North Scottsdale Road, Suite B-252 Scottsdale, Arizona 85253 22. Applicable Law. This Agreement shall be construed, interpreted and enforced in accordance with, and the respective rights and obligations of the parties shall be governed by, the laws of the State of Arizona, and each party irrevocably and unconditionally submits to the exclusive jurisdiction and venue of the courts of Maricopa County, State of Arizona and all courts competent to hear appeals therefrom. 23. Successors and Assigns. This Agreement shall inure to the benefit of and shall be binding on and enforceable by the parties and their respective successors and permitted assigns, as the case may be. Except as provided for herein, neither party shall have the right to assign its rights hereunder, without the prior written consent of the other party. 24. Amendment and Waivers. No amendment or waiver of any provision of this Agreement shall be binding on either party unless consented to in writing by such party. No waiver of any provision of this Agreement shall constitute a waiver of any other provision, nor shall any waiver constitute a continuing waiver unless otherwise provided. 25. Severability. If any provision of this Agreement is determined by a court of competent jurisdiction to be invalid, illegal or unenforceable in any respect, such determination shall not affect or impair the validity, legality or enforceability of the remaining provisions hereof and each provision is hereby declared to be separate, severable and distinct. 26. Attorneys' Fees. In the event of the bringing of any action or suit by a party hereto against another party hereunder by reason of any breach of any of the covenants, agreements or provisions on the part of the other party arising out of this Agreement, then in that event the prevailing party shall be entitled to have and recover from the other party all costs and expenses of the action or suit, including attorneys' fees and costs. * Confidential portions omitted and filed separately with the Commission. 7 27. Execution and Counterparts. This Agreement may be executed in counterparts, each of which shall constitute an original and all of which taken together shall constitute one and the same instrument. IN WITNESS WHEREOF this Agreement has been executed by the parties hereto as of the date first written above. "DISTRIBUTOR" PREMIUM CIGARS INTERNATIONAL, LTD. By: /s/ Steven A. Lambrecht ---------------------------- Its: CEO / Pres. ----------------------- Address: 15651 North 83rd Way Suite 3 Scottsdale, Arizona 85260 Fax: 922-8656 "CIGAR GONE" CIGAR GONE CORPORATION By: /s/ [illegible] ---------------------------- Its: President ----------------------- Address: 7700 Irvine Center Drive Suite 510 Irvine, California 92718 Fax: (714) 727-7451 * Confidential portions omitted and filed separately with the Commission. 8 EXHIBIT A * * Confidential portions omitted and filed separately with the Commission. 9 EXHIBIT B * * Confidential portions omitted and filed separately with the Commission. 10 EXHIBIT C ADDITIONAL DISTRIBUTORS * * Confidential portions omitted and filed separately with the Commission. 11 EXHIBIT D Purchase Price * * Confidential portions omitted and filed separately with the Commission. 12 EX-11.1 6 COMPUTATION OF EARNINGS PER SHARE PREMIUM CIGARS INTERNATIONAL, LTD. AND SUBSIDIARY STATEMENT OF COMPUTATION OF EARNINGS PER SHARE Three Months Six Months Ended Ended September 30, September 30, 1997 1997 ---- ---- Net Loss $ (454,110) $ (776,475) ============ =========== Weighted average common shares outstanding 2,251,371 1,868,042 ============ =========== Primary loss per share $ (.20) $ (.42) ============ =========== Earnings per share are based upon the weighted average number of shares outstanding for each of the respective periods. Fully diluted earnings per share are not presented as they are anti-dilutive. EX-27 7 FDS --
5 1 U.S. Dollar 6-MOS MAR-31-1998 APR-01-1997 SEP-30-1997 1 3,514,417 3,411,897 337,219 0 354,265 7,770,309 206,193 (8,709) 8,618,802 938,176 0 0 0 8,807,049 (1,126,423) 8,618,802 2,000,496 2,000,496 1,521,969 2,661,014 0 0 115,957 (776,475) 0 0 0 0 0 (776,475) (.42) (.42)
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